83 ATC 388
MB Hogan Ch
P Gerber M
GW Beck M
No. 3 Board of Review
Judgment date: 5 September 1983.
Dr. P. Gerber (Member): I am grateful for the careful summary of the facts set out by my colleagues, which I gratefully adopt.
2. I see the problem in simple terms. I ask myself: do dealings in metal futures constitute the carrying on of a profit-making undertaking or scheme? If the answer is ``yes'', a subsidiary question arises: does the intention to engage in such a scheme merely as a ``hedge against inflation'' alter the character of the transaction and/or take it out of the second limb of sec. 26(a)? Applied to this case, the answer to the first question is an unequivocal ``yes''. It may well be that primary producers or merchants can take advantage of futures trading as a flexible form of price insurance and subsume the trading as part of their business operation. This is a far cry from this housewife/speculator who entered the market in the hope of making a surplus.
3. Does the ``hedge against inflation'' argument alter the tax consequences? I am not persuaded that it does. I have no linguistic difficulties with the term ``profit''. Applied to this case, it is the difference between the cost of the various contracts and the net proceeds received by the taxpayer on their sale. I am tempted to add that I find the ``hedge against inflation'' argument legally uncompelling. A ``profit'' is no less a ``profit'' because a speculation is undertaken for the dominant purpose of protecting the purchasing power of the stake. Unless and until Parliament builds the inflation factor into the Tax Act, it must be ignored. I am sympathetic to the argument that life-savings, invested in the futures market for the sole reason of keeping up with inflation, should be freed from the burden of taxation. Regrettably, I am compelled to apply the law, not sympathy.
4. The ``hedge against inflation argument'' in the context of sec. 26(a) has been judicially considered on a number of occasions by several Judges of the High Court. These statements have been usefully summarised in para. 10 of the Chairman's decision. In such cases as
Gauci and Steinberg 75 ATC 4257 and 4221, such stray
83 ATC 398
observations as appear on the subject are clearly obiter, albeit dicta of the highest persuasion and not to be lightly dismissed. In the end, however, I remain unpersuaded and adhere to the view that housewives who trade in futures are assessable in the unlikely event that they show a surplus. This housewife did and her profit must be brought to tax.
5. There remains the question of quantum. The taxpayer, in her objection, alleged that only three of her children had joined with her in this venture. The facts, as they emerged, make it clear that there were in fact four children jointly involved. It may be quite coincidental that the excluded child had, by then, begun to earn assessable income. Be that as it may, her objection prevents her from relying on facts more favourable to her as against the Commissioner. If, in the result, she is compelled to pay 5% more tax on the profit derived from this adventure than would otherwise be due, she has only herself to blame.
6. I would reduce the assessment by $2,941, being three-quarters of the profit.